Governor: The feds, not South Dakota, will set up a health insurance exchange

Sep. 26, 2012

Dennis Daugaard

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Health care details

WEDNESDAY: Gov. Dennis Daugaard said South Dakota would not set up a health insurance exchange but leave that task to the federal government. STILL TO COME: Decision on whether South Dakota will expand Medicaid. 2014: The year the Affordable Care Act requires most Americans to carry health insurance. 71,000: South Dakotans without insurance. INSURANCE COMPANIES: Names of 21 carriers in the state are at http://dlr.sd.gov/insurance/consumers/companies_licensed_major_medical_carriers.aspx.

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The turbulent ride to health reform took another detour Wednesday when Gov. Dennis Daugaard said South Dakota would not set up an insurance exchange but instead would step aside to let the federal government come in and do it.

Daugaard said an exchange would force the state to pay an unacceptable price, nearing $7 million a year.

“It has become very apparent that operating our own exchange will simply not work for South Dakota,” he said.

The first choice of Congress in passing the Affordable Care Act in 2010 was that each state would set up an exchange as a local marketplace for consumers to shop for coverage. But the law allows states to opt out and let federal administrators pick up the duty. South Dakota has about 71,000 uninsured residents who probably would be users of the exchange if they comply with the law’s individual mandate requiring most Americans to buy coverage by 2014.

Health leaders have been looking at the issue for months leading up to Daugaard’s announcement that he wants no part of it.

“The federal law requires exchanges to be self-sustaining by 2015, which means we would either have to charge a fee to South Dakota citizens using the exchange or increase taxes, neither of which I am willing to do,” he said.

South Dakota’s opt-out is one of two recent choices the state has been facing on health reform. Still to come is a decision about whether South Dakota will expand its Medicaid program to make more residents eligible for coverage. That decision probably will not come until after the November election, said Tony Venhuizen, a spokesman for Daugaard.

The health law has provided benefits the past two years, including coverage for young adults on their parents’ insurance plans and preventive screenings and better prescription drug coverage for seniors. But it’s faced many obstacles. South Dakota was one of 26 states that sued the federal government over its constitutionality. That led to a Supreme Court ruling in June, which upheld the law but struck down a section forcing states to expand Medicaid. Daugaard, in office since 2011, has opposed the law all along as an expansion of government that would allow more citizens to depend on Medicaid without curbing costs of health care.

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South Dakota has 21 insurance companies that probably would be candidates for posting their products on an exchange. Federal officials have yet to say how they would set up the service or whether they would need to send in federal employees to run it.

“It’s more than a website where you come pick your coverage,” said Dave Hewett, president of the South Dakota Association of Healthcare Organizations.

Hewett was part of a committee that spent several months last year looking at how an exchange might work. He supports the new health law but does not blame Daugaard for opting out of the exchange.

“He had to make a decision. It’s appropriate that it’s at the federal level given the high fixed costs associated with a health insurance exchange and the demographics,” Hewett said.

The idea itself has merit for individuals and business owners, he said.

“This can change the dynamic of how insurance is offered,” Hewett said. “If I had 10 employees, I could say to my employees instead of me offering this one plan, I will give you ‘x’ amount of dollars and you can go purchase insurance. Some may pocket the difference.”

Dr. Robert Allison, a Pierre physician and president of the South Dakota State Medical Association, said the fate of the entire health law rests with the outcome of the November election. He said his group thinks a state-run exchange would be more responsive to local needs than would a federal exchange, but that a state exchange would cost too much because of the small population here.

“The SDSMA is not suggesting an exchange in our market is necessary,” he added.

Sarah Jennings, state director for AARP South Dakota, a supporter of the Affordable Care Act, said it’s important to make the exchange work, no matter who runs it.

“He made a decision,” Jennings said of Daugaard.

“Everyone anticipated this was an option. If the governor decided from a budget perspective, you can’t fault him for that. The budget has to work out.”

South Dakota has received two federal grants regarding an exchange.

The first, for $1 million, came in 2010 when Mike Rounds was governor. The state used that grant to pay the Navigant consulting business $260,000 for research that led to the estimate that a state-run exchange would cost $6.3 million to $7.7 million a year. The rest of the money helped pay for time and travel of state officials and specialists who studied the issue, Venhuizen said.

A second federal grant, for $5.8 million, arrived in May to continue research into a state-run exchange.

“We have not spent any of that yet, but we do not have to pay it back. We can still use it for planning purposes,” Venhuizen said.

Although opting out of the responsibility of running an exchange, the state still will have oversight of the exchange as the federal government administers it, Venhuizen said. The state Division of Insurance would retain its role in regulating the industry.